Silver in ETPs poised for record as central banks ignite demand

Silver assets in exchange-traded products are poised to expand to a record, joining the biggest- ever hoards of gold and platinum, as increased stimulus from the world’s central banks spurs investors to amass precious metals.

The amount held in ETPs was 18,525.76 metric tons yesterday, 0.6 percent below the peak of 18,639.07 tons in April 2011, according to data compiled by Bloomberg. Silver, which also benefits from bets on economic recovery, has risen 22 percent this year, outperforming gold, platinum and palladium futures.

Silver “runs very hard and fast and it usually goes too far in whatever direction it’s going,” said Nick Trevethan, senior commodities strategist at Australia & New Zealand Banking Group Ltd., who predicts record ETP holdings. “Silver will track gold, but for people to get really excited about silver, we’ll need to see strong industrial demand as well.”

Gold and platinum holdings in ETPs are both at the highest ever after the U.S. Federal Reserve announced on Sept. 13 a third round of debt-buying to bolster the economy, increasing concern the dollar may weaken while inflation accelerates. The infusions of liquidity by central banks have boosted investor interest in so-called hard assets such as bullion, according to Deutsche Bank AG’s asset and wealth-management unit.

Silver futures gained as much as 0.7 percent to $34.225 an ounce on the Comex, and traded at $34.14 at 11:10 a.m. in Singapore. The metal is the best performer so far this quarter on the Standard & Poor’s GSCI Spot Index of 24 raw materials, outperforming gains in wheat, lead and heating oil.

Debt Crisis

The European Central Bank said this month it planned to buy debt of member states to fight the region’s crisis, while the Bank of Japan added 10 trillion yen ($128 billion) to a fund that buys assets. China has approved extra infrastructure spending, while injecting funds into the financial system. The Dollar Index has lost 2.6 percent since June 30, set for the biggest quarterly loss since the first three months of 2011.

Silver holdings in ETPs have expanded 7.1 percent this year, lagging increases in gold, platinum and palladium, according to data tracked by Bloomberg. ETPs trade like shares and enable investors make bets without taking physical delivery of assets.

Holdings of platinum and palladium ETPs have risen 17 percent in 2012, with increases also spurred by labor disputes in South Africa that disrupted supplies. Gold holdings in ETPs have gained 8.1 percent this year.

Hedge funds and other speculators tripled wagers on rising silver prices in the six weeks through Sept. 18, U.S. Commodity Futures Trading Commission data show. They now hold a net 30,986 U.S. futures and options, the most since February. The U.S. Mint’s sales of American Eagle silver coins have climbed to 3.125 million ounces this month, according to the Mint’s website, compared with 2.87 million ounces for all of August.

Solar Panels

Industrial demand from solar panels to batteries accounts for about 53 percent of global silver consumption, according to the Washington-based Silver Institute. Imports by China, the world’s second-largest user and third-biggest producer, fell about 24 percent in the first eight months of this year compared with a year ago as economic growth slowed, customs data show.

China’s central bank last cut interest rates in July, after lowering lenders’ reserve requirement ratio three times from November to May. Gross domestic product expanded 7.6 percent in the second quarter, the smallest gain in three years.

“The policy paralysis in China probably means we’re not going to see a pickup in industrial activity until Q1, maybe Q2, and investors are probably trying to front run that,” Trevethan said from Singapore. “There’s plenty of scope for silver ETPs to continue to rally.”